Prologue Journal

Understanding current events through the lenses of the past and future.

China shrugs off new Trump tariffs but bruising trade war looms

Hong Kong Free Press

Donald Trump’s new tariffs will probably not have a major impact on China’s economy but may herald the opening salvo of another bruising trade war with Beijing, analysts said Sunday.

The US President on Saturday announced sweeping measures against major trade partners, with goods from China facing an additional 10 percent tariff on top of the duties they already endure.

Trump said the measures aimed to punish countries for failing to halt flows of illegal migrants and drugs including fentanyl into the United States.

However, his action against Beijing was “not a big shock to China’s economy”, according to Zhiwei Zhang, president of Pinpoint Asset Management.

Given Beijing had already factored in higher tariffs this year, the move was “unlikely to change the market expectation on China’s macro outlook”, Zhang said.

“I don’t think China needs to take action, such as exchange rate depreciation, to offset (the impact),” he added.

According to Bloomberg Economics, the 10 percent levy could knock out 40 percent of Beijing’s goods exports to the US, affecting 0.9 percent of Chinese GDP.

trade shipping container — File photo: GovHK.

That is a small fraction of China’s vast economy, but it would put extra pressure on policymakers already grappling with slowing growth, a property sector crisis, and sluggish domestic consumption.

‘First strike’

Experts said Trump’s focus seemed to be on trade relationships with Canada and Mexico more than China.

Under the new rules, Canadian and Mexican exports to the US will face 25 percent tariffs, with a partial exemption for Canadian energy resources.

But with targeted countries already vowing retaliation and Trump promising more duties in future, the move was “just the first strike in what could become a very destructive global trade war”, said Paul Ashworth, chief North America economist at Capital Economics.

China has said it will take “corresponding countermeasures” against the tariffs, but has not elaborated what form they might take.

Gary Ng, a senior economist at Natixis, said Beijing “may react by imposing reciprocal tariffs on US imports, limiting exports of critical materials, and restricting market access to some American firms”.

“At the same time, China may also see this as an opportunity to divide US allies and build closer relationships with other countries,” he told AFP.

Usa us flag china chinese — The US and Chinese flag. File photo: Tom Grundy/HKFP.

Zhang, of Pinpoint, said “the trade negotiation between China and the US will be a long process”.

“I think this is just the beginning. We will have to wait and see if the US will raise tariffs on China further down the road,” he said.

Collective shrug

On the streets of Beijing this weekend, the threat of looming tariffs was met with a collective shrug.

“China doesn’t really care too much about the (trade) barriers, because we have already prepared for them,” Xu Yiming, a private equity professional, told AFP outside a busy downtown shopping mall.

China’s robust supply chains and cheap exports were “actually good for the American public, but MAGA supporters might need some trade barriers to help bring jobs back to the US”, the 36-year-old added, using the acronym for Trump’s grassroots movement.

“In the end, it’s everyday people who bear the brunt of tariffs,” he said.

Most people approached by AFP reporters said they were either unaware of the prospective levies or did not understand them well enough.

And though some declined to speak due to the political sensitivity of China-US ties, many seemed more interested in enjoying the ongoing Lunar New Year holiday.

“He should look after the US and leave China to us,” a gruff middle-aged man said of Trump, before wandering off in the direction of a raucous temple fair.

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